Investment Highlights

• We downgrade MSM Malaysia to HOLD from BUY with a lower fair value (FV) of RM1.40/share (vs. RM2.05/share previously). Our FV of RM1.50/share is based on FY22F PE of 15x. We ascribe a three-star ESG rating to MSM.

• We have reduced MSM’s FY21E net profit by 28.2% and FY22F net earnings by 32.3%. This is to account for lower gross profit margins resulting from higher costs of freight and raw sugar.

• MSM’s annualised 9MFY21 core net profitwas 24.2% below our forecast and 36.6% below consensus estimates. Included in MSM’s reported net profit in 3QFY21 was a RM87.5mil gain on the disposal of MSM Perlis.

• Excluding the RM87.5mil disposal gain and gains on liquidation of excess raw sugar hedges and sugar futures amounting to RM43.2mil in total, MSM would have been in an operating loss of RM0.3mil in 3QFY21.

• MSM’s gross profit plunged by 42.8% QoQ to RM23.8mil in 3QFY21. MSM attributed the increase in the cost of sales to an 11% hike in freight costs.

• Demand for refined sugar was weak in 3QFY21 as MCO 3.0 was only lifted at the end of August 2021. Sales volume of refined sugar fell by 7.0% QoQ to 223,000 tonnes in 3QFY21.

• Sales volume of refined sugar to the domestic retail market plunged by 25.0% YoY in 9MFY21 while sales volume to the industries fell by 7.5%. On a positive note, exports sales volume surged by 40.5% QoQ to 59,000 tonnes in 3QFY21.

• Comparing 9MFY21 against 9MFY20, sales volume of refined sugar declined by 6.1% to 687,000 tonnes mainly due to a 16.5% fall in demand from the industries segment.

• Average selling price of refined sugar in the domestic retail and wholesale market increased by 8.9% YoY in 9MFY21.

Source: AmInvest Research - 26 Nov 2021